Moody's cuts State Bank of India's debt rating to 'Baa3'

Global rating agency Moody's today downgraded the senior unsecured debt and local currency deposit rating of country's largest bank State Bank of India (SBI) by a notch to 'Baa3' from 'Baa2', citing asset quality and recapitalisation concerns.

Also read: Fitch takes rating action on Indian banks

"A combination of increasing pressure on credit fundamentals and ongoing reliance on fiscally constrained government to maintain capital at levels desired by regulators argue for appropriateness of supported debt and deposit ratings at a level no higher than the sovereign," Moody's said in a statement.

State Bank of India (SBI) could not be immediately contacted for comments.

SBI's revised rating for the senior unsecured debt and local currency deposit instruments would now be Baa3 from the earlier Baa2, it said, revising down the outlook on the bank's financial strength rating to negative from stable.

Explaining the rationale behind the action, Moody's said the ongoing gloom on the economic front will result in the asset quality, with its loan impaired ratio already touching 8.6 percent, with a heavy increase in the June quarter.

"While there may be a seasonal element to this rise, the spike in NPLs illustrates that the bank's asset quality is under pressure," it said.

On the recapitalisation front, Moody's said SBI will have to compete with other state-run banks for its share in the Rs 14,000 crore allocated in the budget.

The high loan growth of up to 20 percent as against the earlier 15 percent, increasing asset quality troubles and lower margins indicate that the bank's capital levels will decline without external injection, the Moody's said, adding that SBI will require an infusion this fiscal.

When KC Chakrabarty, deputy governor, Reserve Bank of India (RBI) was asked about his views on the downgrade, he said, "Don't worry about the credit rating agencies. They don't have much credibility."